BILL NUMBER: AB 1895	CHAPTERED  09/19/00

	CHAPTER   485
	FILED WITH SECRETARY OF STATE   SEPTEMBER 19, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 16, 2000
	PASSED THE ASSEMBLY   AUGUST 22, 2000
	PASSED THE SENATE   AUGUST 18, 2000
	AMENDED IN SENATE   AUGUST 10, 2000

INTRODUCED BY   Assembly Member Ackerman

                        FEBRUARY 10, 2000

   An act to amend Sections 158, 202, 301.5, 305, 306, 503, 602, 603,
5220, 5512, 7220, 7512, 9220, 9412, 12360, 12462, 25014.7, 25100,
25101, and 25117 of, and to add Section 163.1 to, the Corporations
Code, and to amend Section 11521.2 of the Insurance Code, relating to
corporations.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1895, Ackerman.  Corporations.
   Existing law sets forth organizational procedures and filing
requirements for corporations.  Existing law also regulates the
ownership and sale of, and investment in, securities registered on a
national securities exchange, as provided by federal law.
   This bill would make various changes relating to corporations and
securities, including the following:
   (1) Adds a definition of "cumulative dividends in arrears" for
shareholder distributions.
   (2) Revises the provision regarding professional corporations.
   (3) Changes a reference to securities listed on the National
Market System of the Nasdaq Stock Market in various provisions of
law.
   (4) Specifies the conditions regarding election of a director to
fill a vacancy not created by removal of a director.
   (5) Authorizes a superior court to appoint directors of various
types of nonprofit corporations if the corporation has no
shareholders or initial directors have not been named and all of the
directors die, resign, or become incompetent.
   (6)  Specifies the conditions of a board's approval of business
items if members leave before a vote.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 158 of the Corporations Code is amended to
read:
   158.  (a) "Close corporation" means a corporation whose articles
contain, in addition to the provisions required by Section 202, a
provision that all of the corporation's issued shares of all classes
shall be held of record by not more than a specified number of
persons, not exceeding 35, and a statement "This corporation is a
close corporation."
   (b) The special provisions referred to in subdivision (a) may be
included in the articles by amendment, but if such amendment is
adopted after the issuance of shares only by the affirmative vote of
all of the issued and outstanding shares of all classes.
   (c) The special provisions referred to in subdivision (a) may be
deleted from the articles by amendment, or the number of shareholders
specified may be changed by amendment, but if such amendment is
adopted after the issuance of shares only by the affirmative vote of
at least two-thirds of each class of the outstanding shares;
provided, however, that the articles may provide for a lesser vote,
but not less than a majority of the outstanding shares, or may deny a
vote to any class, or both.
   (d) In determining the number of shareholders for the purposes of
the provision in the articles authorized by this section, a husband
and wife and the personal representative of either shall be counted
as one regardless of how shares may be held by either or both of
them, a trust or personal representative of a decedent holding shares
shall be counted as one regardless of the number of trustees or
beneficiaries and a partnership or corporation or business
association holding shares shall be counted as one (except that any
such trust or entity the primary purpose of which was the acquisition
or voting of the shares shall be counted according to the number of
beneficial interests therein).
   (e) A corporation shall cease to be a close corporation upon the
filing of an amendment to its articles pursuant to subdivision (c) or
if it shall have more than the maximum number of holders of record
of its shares specified in its articles as a result of an inter vivos
transfer of shares which is not void under subdivision (d) of
Section 418, the transfer of shares on distribution by will or
pursuant to the laws of descent and distribution, the dissolution of
a partnership or corporation or business association or the
termination of a trust which holds shares, by court decree upon
dissolution of a marriage or otherwise by operation of law.  Promptly
upon acquiring more than the specified number of holders of record
of its shares, a close corporation shall execute and file an
amendment to its articles deleting the special provisions referred to
in subdivision (a) and deleting any other provisions not permissible
for a corporation which is not a close corporation, which amendment
shall be promptly approved and filed by the board and need not be
approved by the outstanding shares.
   (f) Nothing contained in this section shall invalidate any
agreement among the shareholders to vote for the deletion from the
articles of the special provisions referred to in subdivision (a)
upon the lapse of a specified period of time or upon the occurrence
of a certain event or condition or otherwise.
   (g) The following sections contain specific references to close
corporations:  186, 202, 204, 300, 418, 421, 1111, 1201, 1800 and
1904.
  SEC. 2.  Section 163.1 is added to the Corporations Code, to read:

   163.1.  For purposes of Section 503, "cumulative dividends in
arrears" means only cumulative dividends that have not been paid as
required on a scheduled payment date set forth in, or determined
pursuant to, the articles of incorporation, regardless of whether
those dividends had been declared prior to that scheduled payment
date.
  SEC. 3.  Section 202 of the Corporations Code is amended to read:
   202.  The articles of incorporation shall set forth:
   (a) The name of the corporation; provided, however, that in order
for the corporation to be subject to the provisions of this division
applicable to a close corporation (Section 158), the name of the
corporation must contain the word "corporation", "incorporated" or
"limited" or an abbreviation of one of such words.
   (b) (1) The applicable one of the following statements:
   (i) The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code; or
   (ii) The purpose of the corporation is to engage in the profession
of ____ (with the insertion of a profession permitted to be
incorporated by the California Corporations Code) and any other
lawful activities (other than the banking or trust company business)
not prohibited to a corporation engaging in such profession by
applicable laws and regulations.
   (2) In case the corporation is a corporation subject to the
Banking Law, the articles shall set forth a statement of purpose
which is prescribed in the applicable provision of the Banking Law.
   (3) In case the corporation is a corporation subject to the
Insurance Code as an insurer, the articles shall additionally state
that the business of the corporation is to be an insurer.
   (4) If the corporation is intended to be a "professional
corporation" within the meaning of the Moscone-Knox Professional
Corporation Act (Part 4 (commencing with Section 13400) of Division
3), the articles shall additionally contain the statement required by
Section 13404.
   The articles shall not set forth any further or additional
statement with respect to the purposes or powers of the corporation,
except by way of limitation or except as expressly required by any
law of this state other than this division or any federal or other
statute or regulation (including the Internal Revenue Code and
regulations thereunder as a condition of acquiring or maintaining a
particular status for tax purposes).
   (c) The name and address in this state of the corporation's
initial agent for service of process in accordance with subdivision
(b) of Section 1502.
   (d) If the corporation is authorized to issue only one class of
shares, the total number of shares which the corporation is
authorized to issue.
   (e) If the corporation is authorized to issue more than one class
of shares, or if any class of shares is to have two or more series:
   (1) The total number of shares of each class the corporation is
authorized to issue, and the total number of shares of each series
which the corporation is authorized to issue or that the board is
authorized to fix the number of shares of any such series;
   (2) The designation of each class, and the designation of each
series or that the board may determine the designation of any such
series; and
   (3) The rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares or the
holders thereof, or that the board, within any limits and
restrictions stated, may determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly
unissued class of shares or any wholly unissued series of any class
of shares.  As to any series the number of shares of which is
authorized to be fixed by the board, the articles may also authorize
the board, within the limits and restrictions stated therein or
stated in any resolution or resolutions of the board originally
fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.  In case the number of shares of
any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption
of the resolution originally fixing the number of shares of such
series.
  SEC. 4.  Section 301.5 of the Corporations Code is amended to read:

   301.5.  (a) A listed corporation may, by amendment of its articles
or bylaws, adopt provisions to divide the board of directors into
two or three classes to serve for terms of two or three years
respectively, or to eliminate cumulative voting, or both.  After the
issuance of shares, a corporation which is not a listed corporation
may, by amendment of its articles or bylaws, adopt provisions to be
effective when the corporation becomes a listed corporation to divide
the board of directors into two or three classes to serve for terms
of two or three years respectively, or to eliminate cumulative
voting, or both.  An article or bylaw amendment providing for
division of the board of directors into classes, or any change in the
number of classes, or the elimination of cumulative voting may only
be adopted by the approval of the board and the outstanding shares
(Section 152) voting as a single class, notwithstanding Section 903.

   (b) If the board of directors is divided into two classes pursuant
to subdivision (a), the authorized number of directors shall be no
less than six and one-half of the directors or as close an
approximation as possible shall be elected at each annual meeting of
shareholders.  If the board of directors is divided into three
classes, the authorized number of directors shall be no less than
nine and one-third of the directors or as close an approximation as
possible shall be elected at each annual meeting of shareholders.
Directors of a listed corporation may be elected by classes at a
meeting of shareholders at which an amendment to the articles or
bylaws described in subdivision (a) is approved, but the extended
terms for directors are contingent on that approval, and in the case
of an amendment to the articles, the filing of any necessary
amendment to the articles pursuant to Section 905 or 910.
   (c) If directors for more than one class are to be elected by the
shareholders at any one meeting of shareholders and the election is
by cumulative voting pursuant to Section 708, votes may be cumulated
only for directors to be elected within each class.
   (d) For purposes of this section, a "listed corporation" means any
of the following:
   (1) A corporation with outstanding shares listed on the New York
Stock Exchange or the American Stock Exchange.
   (2) A corporation with outstanding securities listed on the
National Market System of the Nasdaq Stock Market (or any successor
to that entity).
   (e) Subject to subdivision (h), if a listed corporation having a
board of directors divided into classes pursuant to subdivision (a)
ceases to be a listed corporation for any reason, unless the articles
of incorporation or bylaws of the corporation provide for the
elimination of classes of directors at an earlier date or dates, the
board of directors of the corporation shall cease to be divided into
classes as to each class of directors on the date of the expiration
of the term of the directors in that class and the term of each
director serving at the time the corporation ceases to be a listed
corporation (and the term of each director elected to fill a vacancy
resulting from the death, resignation, or removal of any of those
directors) shall continue until its expiration as if the corporation
had not ceased to be a listed corporation.
   (f) Subject to subdivision (h), if a listed corporation having a
provision in its articles or bylaws eliminating cumulative voting
pursuant to subdivision (a) or permitting noncumulative voting in the
election of directors pursuant to that subdivision, or both, ceases
to be a listed corporation for any reason, the shareholders shall be
entitled to cumulate their votes pursuant to Section 708 at any
election of directors occurring while the corporation is not a listed
corporation notwithstanding that provision in its articles of
incorporation or bylaws.
   (g) Subject to subdivision (i), if a corporation that is not a
listed corporation adopts amendments to its articles of incorporation
or bylaws to divide its board of directors into classes or to
eliminate cumulative voting, or both, pursuant to subdivision (a) and
then becomes a listed corporation, unless the articles of
incorporation or bylaws provide for those provisions to become
effective at some other time and, in cases where classes of directors
are provided for, identify the directors who, or the directorships
that, are to be in each class or the method by which those directors
or directorships are to be identified, the provisions shall become
effective for the next election of directors after the corporation
becomes a listed corporation at which all directors are to be
elected.
   (h) If a corporation ceases to be a listed corporation on or after
the record date for a meeting of shareholders and prior to the
conclusion of the meeting, including the conclusion of the meeting
after an adjournment or postponement that does not require or result
in the setting of a new record date, then, solely for purposes of
subdivisions (e) and (f), the corporation shall not be deemed to have
ceased to be a listed corporation until the conclusion of the
meeting of shareholders.
   (i) If a corporation becomes a listed corporation on or after the
record date for a meeting of shareholders and prior to the conclusion
of the meeting, including the conclusion of the meeting after an
adjournment or postponement that does not require or result in the
setting of a new record date, then, solely for purposes of
subdivision (g), the corporation shall not be deemed to have become a
listed corporation until the conclusion of the meeting of
shareholders.
   (j) If an article amendment referred to in subdivision (a) is
adopted by a listed corporation, the certificate of amendment shall
include a statement of the facts showing that the corporation is a
listed corporation within the meaning of subdivision (d).  If an
article or bylaw amendment referred to in subdivision (a) is adopted
by a corporation which is not a listed corporation, the provision, as
adopted, shall include the following statement or the substantial
equivalent:  "This provision shall become effective only when the
corporation becomes a listed corporation within the meaning of
Section 301.5 of the Corporations Code."
  SEC. 5.  Section 305 of the Corporations Code is amended to read:
   305.  (a) Unless otherwise provided in the articles or bylaws and
except for a vacancy created by the removal of a director, vacancies
on the board may be filled by approval of the board (Section 151) or,
if the number of directors then in office is less than a quorum, by
(1) the unanimous written consent of the directors then in office,
(2) the affirmative vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice
complying with Section 307 or (3) a sole remaining director.  Unless
the articles or a bylaw adopted by the shareholders provide that the
board may fill vacancies occurring in the board by reason of the
removal of directors, such vacancies may be filled only by approval
of the shareholders (Section 153).
   (b) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors.  Any such election by written
consent other than to fill a vacancy created by removal, which
requires the unanimous consent of all shares entitled to vote for the
election of directors, requires the consent of a majority of the
outstanding shares entitled to vote.
   (c) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders
shall constitute less than a majority of the directors then in
office, then both of the following shall be applicable:
   (1) Any holder or holders of an aggregate of 5 percent or more of
the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of
shareholders, or
   (2) The superior court of the proper county shall, upon
application of such shareholder or shareholders, summarily order a
special meeting of shareholders, to be held to elect the entire
board.  The term of office of any director shall terminate upon that
election of a successor.
   The hearing on any application filed pursuant to this subdivision
shall be held on not less than 10 business days notice to the
corporation.  If the corporation intends to oppose the application,
it shall file with the court a notice of opposition not later than
five business days prior to the date set for the hearing.  The
application and any notice of opposition shall be supported by
appropriate affidavits and the court's determination shall be made on
the basis of the papers in the record; but, for good cause shown,
the court may receive and consider at the hearing additional
evidence, oral or documentary, and additional points and authorities.
  The hearing shall take precedence over all other matters not of a
similar nature pending on the date set for the hearing.
   (d) Any director may resign effective upon giving written notice
to the chairman of the board, the president, the secretary or the
board of directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation.  If the
resignation is effective at a future time, a successor may be elected
to take office when the resignation becomes effective.
  SEC. 6.  Section 306 of the Corporations Code is amended to read:
   306.  If (a) a corporation has not issued shares and all the
directors resign, die, or become incompetent, or (b) a corporation's
initial directors have not been named in the articles, and all the
incorporators resign, die, or become incompetent prior to the
election of the initial directors, the superior court of any county
may appoint directors of the corporation upon application by any
party in interest.
  SEC. 7.  Section 503 of the Corporations Code is amended to read:
   503.  Neither a corporation nor any of its subsidiaries shall make
any distribution to the corporation's shareholders (Section 166) on
any shares of its stock of any class or series that are junior to
outstanding shares of any other class or series with respect to
payment of dividends, and as to which senior class or series the
corporation has cumulative dividends in arrears, unless the amount of
the retained earnings of the corporation immediately prior thereto
equals or exceeds the amount of the proposed distribution plus the
aggregate amount of the cumulative dividends in arrears on all shares
having a preference with respect to payment of dividends over the
class or series to which the distribution is made; provided, however,
that for the purpose of applying this section to a distribution by a
corporation of cash or property in payment by the corporation in
connection with the purchase of its shares, there shall be added to
retained earnings all amounts that had been previously deducted
therefrom with respect to obligations incurred in connection with the
corporation's repurchase of its shares and reflected on the
corporation's balance sheet, but not in excess of the principal of
the obligations that remain unpaid immediately prior to the
distribution; provided, further, that no addition to retained
earnings shall occur on account of any obligation that is a
distribution to the corporation's shareholders (Section 166) at the
time the obligation is incurred.
  SEC. 8.  Section 602 of the Corporations Code is amended to read:
   602.  (a) Unless otherwise provided in the articles, a majority of
the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the shareholders, but in no
event shall a quorum consist of less than one-third (or, in the case
of a mutual water company, 20 percent) of the shares entitled to
vote at the meeting or, except in the case of a close corporation, of
more than a majority of the shares entitled to vote at the meeting.
Except as provided in subdivision (b), the affirmative vote of a
majority of the shares represented and voting at a duly held meeting
at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) shall be the
act of the shareholders, unless the vote of a greater number or
voting by classes is required by this division or the articles.
   (b) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares
required to constitute a quorum or, if required by this division or
the articles, the vote of a greater number or voting by classes.
   (c) In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (b).
  SEC. 9.  Section 603 of the Corporations Code is amended to read:
   603.  (a) Unless otherwise provided in the articles, any action
which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent
in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted.
   (b) Unless the consents of all shareholders entitled to vote have
been solicited in writing,   (1) Notice of any shareholder approval
pursuant to Section 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given at least 10 days before
the consummation of the action authorized by such approval, and
(2) Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who
have not consented in writing.  Subdivision (b) of Section 601
applies to such notice.
   (c) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxyholders,
may revoke the consent by a writing received by the corporation prior
to the time that written consents of the number of shares required
to authorize the proposed action have been filed with the secretary
of the corporation, but may not do so thereafter.  Such revocation is
effective upon its receipt by the secretary of the corporation.
   (d) Notwithstanding subdivision (a), directors may not be elected
by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors; provided that the
shareholders may elect a director to fill a vacancy, other than a
vacancy created by removal, by the written consent of a majority of
the outstanding shares entitled to vote.
  SEC. 10.  Section 5220 of the Corporations Code is amended to read:

   5220.  (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than three years, as are fixed
in the articles or bylaws.  However, the terms of directors of a
corporation without members may be up to six years.  In the absence
of any provision in the articles or bylaws, the term shall be one
year.  The articles or bylaws may provide for staggering the terms of
directors by dividing the total number of directors into groups of
one or more directors.  The terms of office of the several groups and
the number of directors in each group need not be uniform.  No
amendment of the articles or bylaws may extend the term of a director
beyond that for which the director was elected, nor may any bylaw
provision increasing the terms of directors be adopted without
approval of the members (Section 5034).
   (b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
   (c) The articles or bylaws may provide for the election of one or
more directors by the members of any class voting as a class.
   (d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members.  Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (e) of Section 5222.  A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 5034), subject, if so provided in
the bylaws, to the consent of the person or persons entitled to
designate or select any such director or directors.
   (e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
  SEC. 11.  Section 5512 of the Corporations Code is amended to read:

   5512.  (a) One-third of the voting power, represented in person or
by proxy, shall constitute a quorum at a meeting of members, but,
subject to subdivisions (b) and (c), a bylaw may set a different
quorum.  Any bylaw amendment to increase the quorum may be adopted
only by approval of the members (Section 5034).  If a quorum is
present, the affirmative vote of the majority of the voting power
represented at the meeting, entitled to vote, and voting on any
matter shall be the act of the members, unless the vote of a greater
number or voting by classes is required by this part or the articles
or bylaws.
   (b) Where a bylaw authorizes a corporation to conduct a meeting
with a quorum of less than one-third of the voting power, then the
only matters that may be voted upon at any regular meeting actually
attended, in person or by proxy, by
          less than one-third of the voting power are matters notice
of the general nature of which was given, pursuant to the first
sentence of subdivision (a) of Section 5511.
   (c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division or the articles or the bylaws, the vote of a greater number
or voting by classes.
   (d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (c).
  SEC. 12.  Section 7220 of the Corporations Code is amended to read:

   7220.  (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than four years, as are fixed
in the articles or bylaws.  However, the terms of directors of a
corporation without members may be up to six years.  In the absence
of any provision in the articles or bylaws, the term shall be one
year.  The articles or bylaws may provide for staggering the terms of
directors by dividing the total number of directors into groups of
one or more directors.  The terms of office of the several groups and
the number of directors in each group need not be uniform.  No
amendment of the articles or bylaws may extend the term of a director
beyond that for which the director was elected, nor may any bylaw
provision increasing the terms of directors be adopted without
approval of the members (Section 5034).
   (b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
   (c) The articles or bylaws may provide for the election of one or
more directors by the members of any class voting as a class.
   (d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members.  Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (e) of Section 7222.  A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 5034).
   (e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
  SEC. 13.  Section 7512 of the Corporations Code is amended to read:

   7512.  (a) One-third of the voting power, represented in person or
by proxy, shall constitute a quorum at a meeting of members, but,
subject to subdivisions (b) and (c), a bylaw may set a different
quorum.  Any bylaw amendment to increase the quorum may be adopted
only by approval of the members (Section 5034).  If a quorum is
present, the affirmative vote of the majority of the voting power
represented at the meeting, entitled to vote, and voting on any
matter shall be the act of the members unless the vote of a greater
number or voting by classes is required by this part or the articles
or bylaws.
   (b) Where a bylaw authorizes a corporation to conduct a meeting
with a quorum of less than one-third of the voting power, then the
only matters that may be voted upon at any regular meeting actually
attended, in person or by proxy, by less than one-third of the voting
power are matters notice of the general nature of which was given,
pursuant to the first sentence of subdivision (a) of Section 7511.
   (c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division, or by the articles or the bylaws, the vote of the greater
number or voting by classes.
   (d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (c).
  SEC. 14.  Section 9220 of the Corporations Code is amended to read:

   9220.  (a) The articles or bylaws may provide for the tenure,
election, selection, designation, removal, and resignation of
directors.
   (b) In the absence of any provision in the articles or bylaws, the
term of directors shall be one year.
   (c) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
   (d) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
  SEC. 15.  Section 9412 of the Corporations Code is amended to read:

   9412.  (a) One-third of the voting power, represented in person,
by written ballot, or by proxy, shall constitute a quorum at a
meeting of members.  If a quorum is present, the affirmative vote of
the majority of the voting power represented at the meeting, entitled
to vote, and voting on any matter shall be the act of the members.
   (b) The members present at a duly called or held meeting at which
a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough members to leave
less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the members required to constitute
a quorum or, if required by this division, or by the articles or the
bylaws, the vote of the greater number or voting by classes.
   (c) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (b).
  SEC. 16.  Section 12360 of the Corporations Code is amended to
read:
   12360.  (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than four years, as are fixed
in the articles or bylaws.  In the absence of any provision in the
articles or bylaws, the terms shall be one year.  No amendment of the
articles or bylaws may extend the term of a director beyond that for
which the director was elected, nor may any bylaw provision
increasing the terms of directors be adopted without approval of the
members.
   (b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
   (c) The articles or bylaws may prescribe requirements for
eligibility for election as a director.
   (d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members.  Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (f) of Section 12362.  A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 12224).
   (e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
  SEC. 17.  Section 12462 of the Corporations Code is amended to
read:
   12462.  (a) The lesser of 250 members or members representing 5
percent of the voting power, shall constitute a quorum at a meeting
of members, but, subject to subdivisions (b) and (c), a bylaw may set
a different quorum.  Any bylaw amendment to increase the quorum may
be adopted only by approval of the members (Section 12224).  If a
quorum is present, the affirmative vote of the majority of the voting
power represented at the meeting, entitled to vote, and voting on
any matter shall be the act of the members unless the vote of a
greater number or voting by classes is required by this part or the
articles or bylaws.
   (b) Where a corporation is authorized to conduct a meeting with a
quorum of less than one-third of the voting power, then the only
matters that may be voted upon at any regular meeting actually
attended by less than one-third of the voting power are matters
notice of the general nature of which was given, pursuant to the
first sentence of subdivision (a) of Section 12461.
   (c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division or the articles or the bylaws, the vote of the greater
number or voting by classes.
   (d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented in person, but no other business may be transacted,
except as provided in subdivision (c).
  SEC. 18.  Section 25014.7 of the Corporations Code is amended to
read:
   25014.7.  (a) "Eligible rollup transaction" means a rollup
transaction in which the new securities issued are either listed or
approved for listing on a national securities exchange or on the
National Market System of the Nasdaq Stock Market (or any successor
to that entity), where the national securities exchange and the
Nasdaq Stock Market (or its successor) have been certified by the
commissioner under subdivision (o) of Section 25100, if the exchange
or Nasdaq Stock Market (or its successor) requires as a condition to
listing or designation that the rollup transaction be conducted in
accordance with procedures to protect the rights of limited partners.

   (b) The rights of limited partners will be presumed to be
protected if the rollup transaction provides for the right of
dissenting limited partners:
   (1) To receive compensation for their limited partnership units
based on an appraisal of the limited partnership assets performed by
an independent appraiser unaffiliated with the sponsor or general
partner of the limited partnership and which value the assets as if
sold in an orderly manner in a reasonable period of time, plus or
minus other balance sheet items, and less the cost of sale or
refinancing.  Compensation to dissenting limited partners of rollup
transactions may be cash, secured debt instruments, unsecured debt
instruments, or freely tradeable securities; provided, however, that:

   (A) Rollups which utilize debt instruments as compensation provide
for a trustee and an indenture to protect the rights of the debt
holders and provide a rate of interest based upon, but not less than,
the then applicable federal rate as determined in accordance with
Section 1274 of the Internal Revenue Code of 1986.
   (B) Rollups which utilize unsecured debt instruments as
compensation, in addition to the requirements of subparagraph (A) of
paragraph (1), limit total leverage to 70 percent of the appraised
value of the assets.
   (C) All debt securities have a term no greater than seven years
and provide for prepayment with 80 percent of the net proceeds of any
sale or refinancing of the assets previously owned by the entity or
any part thereof.
   (D) Freely tradeable securities utilized as compensation to
dissenting limited partners must be issued by an issuer whose
securities are listed on a certified national securities exchange or
listed on the National Market System of the Nasdaq Market System (or
its successor), if so certified, for at least one year prior to the
transaction, and the number of securities to be received in return
for limited partnership interests must be determined by an appraisal
of limited partnership assets, conducted in a manner consistent with
paragraph (1) of subdivision (b), in relation to the average last
sale price of the freely tradeable securities in the 20-day period
following the transaction.  If the issuer of the freely tradeable
securities is affiliated with the sponsor or general partner, newly
issued securities to be utilized as compensation to dissenting
limited partners shall not represent more than 20 percent of the
issued and outstanding shares of that class of securities after
giving effect to the issuance.  For the purposes of the preceding
sentence, a sponsor or general partner is "affiliated" with the
issuer of the freely tradeable securities if the sponsor or general
partner receives any material compensation from the issuer or its
affiliates in conjunction with the rollup transaction or the purchase
of the general partner's interest; provided, however, that nothing
herein shall restrict the ability of a sponsor or general partner to
receive any payment for its equity interests and compensation as
otherwise provided by this section.
   (2) To receive or retain a security with substantially the same
terms and conditions as the security originally held, provided that
the receipt or retention of that security is not a step in a series
of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or
reorganizations of one or more rollup participants.  Securities
received or retained will be considered to have the same terms and
conditions as the security originally held if:
   (A) There is no material adverse change to dissenting limited
partners' rights, including, but not limited to, rights with respect
to voting, the business plan, or the investment, distribution,
management compensation and liquidation policies of the limited
partnership or resulting entity.
   (B) The dissenting limited partners receive the same preferences,
privileges, and priorities as they had pursuant to the security
originally held.
   The rights set forth in paragraphs (1) and (2) are the only rights
of dissenting limited partners to which the presumption under
subdivision (b) applies.  A general partner or sponsor shall file an
application for qualification pursuant to Section 25110 or Section
25120 with respect to any other rights proposed to be offered to
dissenting limited partners.
   At the time a registration statement is filed with the Securities
and Exchange Commission with respect to an eligible rollup
transaction, a general partner or sponsor shall notify, to the
maximum extent permitted by the federal securities laws, each limited
partner who has an address in this state by certified mail of the
following:  That a registration statement has been filed with the
Securities and Exchange Commission with respect to a rollup
transaction; that the general partner or sponsor claims an exemption
from the review process under the law by virtue of Section 25014.7,
which defines "eligible rollup transaction"; that the general partner
or sponsor has the burden of proof under the law that the
transaction meets the definition of eligible rollup transaction; and
that the commissioner does not recommend or endorse the transaction.

   (c) The rights of limited partners shall be presumed not to be
protected if the general partner:
   (1) Converts an equity interest in the limited partnerships
subject to a rollup for which consideration was not paid and which
was not otherwise provided for in the limited partnership agreement
and disclosed to limited partners, into a voting interest in the new
entity, provided, however, an interest originally obtained in order
to comply with the provisions of Internal Revenue Service Revenue
Proclamation 89-12 may be converted.
   (2) Fails to follow the valuation provisions in the limited
partnership agreements of the subject limited partners when valuing
their limited partnership interests.
   (3) Utilizes a future value of their equity interest rather than
the current value of their equity interest, as determined by an
appraisal conducted in a manner consistent with paragraph (1) of
subdivision (b), when determining their interest in the new entity.
   (d) The rights of limited partners shall be presumed not to be
protected as to voting rights, if:
   (1) The voting rights in the entity resulting from a rollup do not
generally follow the original voting rights of the limited
partnerships participating in the rollup transaction.
   (2) A majority of the interest in an entity resulting from a
rollup transaction may not, without concurrence by the sponsor,
general partners, board of directors or trustee, depending on the
form of entity, vote to:
   (A) Amend the limited partnership agreement, articles of
incorporation or bylaws, or indenture.
   (B) Dissolve the entity.
   (C) Remove management and elect new management.
   (D) Approve or disapprove the sale of substantially all of the
assets of the entity.
   (3) The general partner or sponsor proposing a rollup is not
required to provide each person whose equity interest is subject to
the rollup transaction with a document which instructs the person on
the proper procedure for voting against or dissenting from the rollup
transaction.
   (4) The general partner or sponsor does not utilize an independent
third party to receive and tabulate all votes and dissents, and
require that the third party make the tabulation available to the
general partner and any limited partner upon request at any time
during and after voting occurs.
   (e) The rights of limited partners shall be presumed not to be
protected as to transaction costs if:
   (1) Limited partners bear an unfair portion of the transaction
costs of a proposed rollup transaction that is rejected.  For
purposes of this provision, transaction costs are defined as the
costs of printing and mailing the proxy, prospectus, or other
documents; legal fees not related to the solicitation of votes or
tenders; financial advisory fees; investment banking fees; appraisal
fees; accounting fees; independent committee expenses; travel
expenses; and all other fees related to the preparatory work of the
transaction, but not including costs that would have otherwise been
incurred by the subject limited partnerships in the ordinary course
of business, or solicitation expenses.
   (2) Transaction costs of a rejected rollup transaction are not
apportioned between general and limited partners of the subject
limited partnerships according to the final vote on the proposed
transaction as follows:
   (A) The general partner or sponsor bears all rollup transaction
costs in proportion to the number of votes to reject the rollup
transaction.
   (B) Limited partners bear transaction costs in proportion to the
number of votes to approve the rollup transaction.
   (3) The dissenting limited partnership is required to pay any of
the costs of the rollup transaction and the general partner or
sponsor is not required to pay the rollup transaction costs on behalf
of the dissenting limited partnerships in a rollup in which one or
more limited partnerships determines not to approve the transaction,
but where the rollup transaction is consummated with respect to one
or more approving limited partnerships.
   (f) The rights of limited partners shall be presumed not to be
protected as to fees of general partners and sponsors, if:
   (1) General partners and sponsors are not prevented from receiving
both unearned management fees discounted to a present value, if
those fees were not previously provided for in the limited
partnership agreement and disclosed to limited partners, and new
asset-based fees.
   (2) Property management fees and other management fees are not
appropriate, not reasonable and greater than what would be paid to
third parties for performing similar services.
   (3) Changes in fees which are substantial and adverse to limited
partners are not approved by an independent committee according to
the facts and circumstances of each transaction.
   (g) A general partner or sponsor proposing a rollup transaction
shall pay all solicitation expenses related to the transaction,
including all preparatory work related thereto, in the event the
rollup transaction is not approved.  For purposes of this section,
"solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees
related to the solicitation, as well as direct solicitation
compensation to brokers and dealers.
   (h) A broker or dealer may not receive compensation for soliciting
votes or tenders from limited partners in connection with a rollup
transaction unless that compensation:
   (1) Is payable and equal in amount regardless of whether the
limited partner votes affirmatively or negatively in the proposed
rollup.
   (2) In the aggregate, does not exceed 2 percent of the exchange
value of the newly created securities.
   (3) Is paid regardless of whether the limited partners reject the
proposed rollup transaction.
   (i) As used in this section, the following terms have the
following meanings:
   (1) "Limited partnership" includes any entity determined to be a
"partnership" pursuant to Section 14(h)(4)(B) of the Securities
Exchange Act of 1934 or such other entity having a substantially
economically equivalent form of ownership instrument.
   (2) "Dissenting limited partner" means a holder or a beneficial
interest in a limited partnership that is the subject of a rollup
transaction who casts a vote against the rollup transaction, except
that for purposes of an exchange or tender offer dissenting limited
partner means any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or
tenders, to be received in connection with the transaction during the
period in which the offer is outstanding.
   (3) "Management fee" means a fee paid to the sponsor, general
partner, their affiliates, or other persons for management and
administration of the limited partnership.
  SEC. 19.  Section 25100 of the Corporations Code is amended to
read:
   25100.  The following securities are exempted from Sections 25110,
25120, and 25130:
   (a) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any city, county, city
and county, public district, public authority, public corporation,
public entity, or political subdivision of a state or any agency or
corporate or other instrumentality of any one or more of the
foregoing; or any certificate of deposit for any of the foregoing.
   (b) Any security issued or guaranteed by Canada, any Canadian
province, any political subdivision or municipality of that province,
or by any other foreign government with which the United States
currently maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer or guarantor; or any
certificate of deposit for any of the foregoing.
   (c) Any security issued or guaranteed by and representing an
interest in or a direct obligation of a national bank or a bank or
trust company incorporated under the laws of this state, and any
security issued by a bank to one or more other banks and representing
an interest in an asset of the issuing bank.
   (d) Any security issued or guaranteed by a federal savings
association or federal savings bank or federal land bank or joint
land bank or national farm loan association or by any savings
association, as defined in subdivision (a) of Section 5102 of the
Financial Code, which is subject to the supervision and regulation of
the Commissioner of Financial Institutions of this state.
   (e) Any security (other than an interest in all or portions of a
parcel or parcels of real property which are subdivided land or a
subdivision or in a real estate development), the issuance of which
is subject to authorization by the Insurance Commissioner, the Public
Utilities Commission, or the Real Estate Commissioner of this state.

   (f) Any security consisting of any interest in all or portions of
a parcel or parcels of real property which are subdivided lands or a
subdivision or in a real estate development; provided that the
exemption in this subdivision shall not be applicable to:  (1) any
investment contract sold or offered for sale with, or as part of,
that interest, or (2) any person engaged in the business of selling,
distributing, or supplying water for irrigation purposes or domestic
use that is not a public utility except that the exemption is
applicable to any security of a mutual water company (other than an
investment contract as described in paragraph (1)) offered or sold in
connection with subdivided lands pursuant to Chapter 2 (commencing
with Section 14310) of Part 7 of Division 3 of Title 1.
   (g) Any mutual capital certificates or savings accounts, as
defined in the Savings Association Law, issued by a savings
association, as defined by subdivision (a) of Section 5102 of
                                   the Financial Code, and holding a
license or certificate of authority then in force from the
Commissioner of Financial Institutions of this state.
   (h) Any security issued or guaranteed by any federal credit union,
or by any credit union organized and supervised, or regulated, under
the Credit Union Law.
   (i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered with
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935 or a subsidiary of that company within
the meaning of that act or (3) regulated in respect of the issuance
or guarantee of the security by a governmental authority of the
United States, of any state, of Canada or of any Canadian province;
and the security is subject to registration with or authorization of
issuance by that authority.
   (j) Any security (except evidences of indebtedness, whether
interest bearing or not) of an issuer (1) organized exclusively for
educational, benevolent, fraternal, religious, charitable, social, or
reformatory purposes and not for pecuniary profit, if no part of the
net earnings of the issuer inures to the benefit of any private
shareholder or individual, or (2) organized as a chamber of commerce
or trade or professional association.  The fact that amounts received
from memberships or dues or both will or may be used to construct or
otherwise acquire facilities for use by members of the nonprofit
organization does not disqualify the organization for this exemption.
  This exemption does not apply to the securities of any nonprofit
organization if any promoter thereof expects or intends to make a
profit directly or indirectly from any business or activity
associated with the organization or operation of that nonprofit
organization or from remuneration received from that nonprofit
organization.
   (k) Any agreement, commonly known as a "life income contract," of
an issuer (1) organized exclusively for educational, benevolent,
fraternal, religious, charitable, social, or reformatory purposes and
not for pecuniary profit and (2) which the commissioner designates
by rule or order, with a donor in consideration of a donation of
property to that issuer and providing for the payment to the donor or
persons designated by him or her of income or specified periodic
payments from the donated property or other property for the life of
the donor or those other persons.
   (l) Any note, draft, bill of exchange, or banker's acceptance
which is freely transferable and of prime quality, arises out of a
current transaction or the proceeds of which have been or are to be
used for current transactions, and which evidences an obligation to
pay cash within nine months of the date of issuance, exclusive of
days of grace, or any renewal of that paper which is likewise
limited, or any guarantee of that paper or of that renewal, provided
that the paper is not offered to the public in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.  In addition, the commissioner may, by rule or order,
exempt any issuer of any notes, drafts, bills of exchange or banker's
acceptances from qualification of those securities when the
commissioner finds that the qualification is not necessary or
appropriate in the public interest or for the protection of
investors.
   (m) Any security issued by any corporation organized and existing
under the provisions of Chapter 1 (commencing with Section 54001) of
Division 20 of the Food and Agricultural Code.
   (n) Any beneficial interest in an employees' pension,
profit-sharing, stock bonus or similar benefit plan which meets the
requirements for qualification under Section 401 of the federal
Internal Revenue Code or any statute amendatory thereof or
supplementary thereto.  A determination letter from the Internal
Revenue Service stating that an employees' pension, profit-sharing,
stock bonus or similar benefit plan meets those requirements shall be
conclusive evidence that the plan is an employees' pension,
profit-sharing, stock bonus or similar benefit plan within the
meaning of the first sentence of this subdivision until the date the
determination letter is revoked in writing by the Internal Revenue
Service, regardless of whether or not the revocation is retroactive.

   (o) Any security listed or approved for listing upon notice of
issuance on a national securities exchange or on the National Market
System of the Nasdaq Stock Market (or any successor to that entity),
if the exchange or Nasdaq Stock Market (or its successor) has been
certified by rule or order of the commissioner and any warrant or
right to purchase or subscribe to the security.  The exemption
afforded by this subdivision does not apply to securities listed or
approved for listing upon notice of issuance on a national securities
exchange or on the National Market System of the Nasdaq Stock Market
(or its successor), in a rollup transaction unless the rollup
transaction is an eligible rollup transaction as defined in Section
25014.7.
   That certification of any exchange or the Nasdaq Stock Market (or
its successor) shall be made by the commissioner upon the written
request of the exchange or Nasdaq Stock Market (or its successor) if
the commissioner finds that the exchange or Nasdaq Stock Market (or
its successor):  (i) in acting on applications for listing of common
stock substantially applies the minimum standards set forth in either
alternative (A) or (B) of paragraph (1), and (ii) in considering
suspension or removal from listing, substantially applies each of the
criteria set forth in paragraph (2).
   (1) Listing standards:
   (A) (i) Shareholders' equity of at least four million dollars
($4,000,000).
   (ii) Pretax income of at least seven hundred fifty thousand
dollars ($750,000) in the issuer's last fiscal year or in two of its
last three fiscal years.
   (iii) Minimum public distribution of 500,000 shares (exclusive of
the holdings of officers, directors, controlling shareholders, and
other concentrated or family holdings), together with a minimum of
800 public holders or minimum public distribution of 1,000,000 shares
together with a minimum of 400 public holders.  The exchange or
Nasdaq Stock Market (or its successor) may also consider the listing
of a company's securities if the company has a minimum of 500,000
shares publicly held, a minimum of 400 shareholders and daily trading
volume in the issue has been approximately 2,000 shares or more for
the six months preceding the date of application.  In evaluating the
suitability of an issue for listing under this trading provision, the
exchange or Nasdaq Stock Market (or its successor) shall review the
nature and frequency of that activity and any other factors as it may
determine to be relevant in ascertaining whether the issue is
suitable for trading.  A security that trades infrequently shall not
be considered for listing under this paragraph even though average
daily volume amounts to 2,000 shares per day or more.
   Companies whose securities are concentrated in a limited
geographical area, or whose securities are largely held in block by
institutional investors, normally may not be considered eligible for
listing unless the public distribution appreciably exceeds 500,000
shares.
   (iv) Minimum price of three dollars ($3) per share for a
reasonable period of time prior to the filing of a listing
application; provided, however, in certain instances an exchange or
Nasdaq Stock Market (or its successor) may favorably consider listing
an issue selling for less than three dollars ($3) per share after
considering all pertinent factors, including market conditions in
general, whether historically the issue has sold above three dollars
($3) per share, the applicant's capitalization, and the number of
outstanding and publicly held shares of the issue.
   (v) An aggregate market value for publicly held shares of at least
three million dollars ($3,000,000).
   (B) (i) Shareholders' equity of at least four million dollars
($4,000,000).
   (ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).
   (iii) Operating history of at least three years.
   (iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).
   (2) Criteria for consideration of suspension or removal from
listing:
   (i) If a company that (A) has shareholders' equity of less than
one million dollars ($1,000,000) has sustained net losses in each of
its two most recent fiscal years, or (B) has net tangible assets of
less than three million dollars ($3,000,000) and has sustained net
losses in three of its four most recent fiscal years.
   (ii) If the number of shares publicly held (excluding the holdings
of officers, directors, controlling shareholders and other
concentrated or family holdings) is less than 150,000.
   (iii) If the total number of shareholders is less than 400 or if
the number of shareholders of lots of 100 shares or more is less than
300.
   (iv) If the aggregate market value of shares publicly held is less
than seven hundred fifty thousand dollars ($750,000).
   (v) If shares of common stock sell at a price of less than three
dollars ($3) per share for a substantial period of time and the
issuer shall fail to effectuate a reverse stock split of the shares
within a reasonable period of time after being requested by the
exchange to take that action.
   A national securities exchange or Nasdaq Stock Market (or its
successor), certified by rule or order of the commissioner under this
subdivision, shall file annual reports when requested to do so by
the commissioner.  The annual reports shall contain, by issuer:  the
variances granted to an exchange's listing standards or Nasdaq Stock
Market's (or its successor) criteria, including variances from
corporate governance and voting rights' standards, for any security
of that issuer; the reasons for the variances; a discussion of the
review procedure instituted by the exchange or Nasdaq Stock Market
(or its successor) to determine the effect of the variances on
investors and whether the variances should be continued; and any
other information that the commissioner deems relevant.  The purpose
of these reports is to assist the commissioner in determining whether
the quantitative and qualitative requirements of this subdivision
are substantially being met by the exchange in general or with regard
to any particular security.
   The commissioner after appropriate notice and opportunity for
hearing in accordance with the provisions of the Administrative
Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code, may, in his or her
discretion, by rule or order, decertify any exchange or Nasdaq Stock
Market (or its successor) previously certified that ceases
substantially to apply the minimum standards or criteria as set forth
in paragraphs (1) and (2).
   A rule or order of certification shall conclusively establish that
any security listed or approved for listing upon notice of issuance
on any exchange, or listed on the National Market System of the
Nasdaq Stock Market (or its successor), named in a rule or order of
certification, and any warrant or right to purchase or subscribe to
that security, is exempt under this subdivision until the adoption by
the commissioner of any rule or order decertifying the exchange or
the Nasdaq Stock Market (or its successor).
   (p) A promissory note secured by a lien on real property, which is
neither one of a series of notes of equal priority secured by
interests in the same real property nor a note in which beneficial
interests are sold to more than one person or entity.
   (q) Any unincorporated interindemnity or reciprocal or
interinsurance contract, that qualifies under the provisions of
Section 1280.7 of the Insurance Code, between members of a
cooperative corporation, organized and operating under Part 2
(commencing with Section 12200) of Division 3 of Title 1, and whose
members consist only of physicians and surgeons licensed in
California, which contracts indemnify solely in respect to medical
malpractice claims against the members, and which do not collect in
advance of loss any moneys other than contributions by each member to
a collective reserve trust fund or for necessary expenses of
administration.
   (1) Whenever it appears to the commissioner that any person has
engaged or is about to engage in any act or practice constituting a
violation of any provision of Section 1280.7 of the Insurance Code,
the commissioner may, in the commissioner's discretion, bring an
action in the name of the people of the State of California in the
superior court to enjoin the acts or practices or to enforce
compliance with Section 1280.7 of the Insurance Code.  Upon a proper
showing a permanent or preliminary injunction, a restraining order,
or a writ of mandate shall be granted and a receiver or conservator
may be appointed for the defendant or the defendant's assets.
   (2) The commissioner may, in the commissioner's discretion, (A)
make public or private investigations within or outside of this state
as the commissioner deems necessary to determine whether any person
has violated or is about to violate any provision of Section 1280.7
of the Insurance Code or to aid in the enforcement of Section 1280.7,
and (B) publish information concerning the violation of Section
1280.7.
   (3) For the purpose of any investigation or proceeding under this
section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records which the commissioner
deems relevant or material to the inquiry.
   (4) In case of contumacy by, or refusal to obey a subpoena issued
to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring the person
to appear before the commissioner, or the officer designated by the
commissioner, to produce documentary evidence, if so ordered, or to
give evidence touching the matter under investigation or in question.
  Failure to obey the order of the court may be punished by the court
as a contempt.
   (5) No person is excused from attending or testifying or from
producing any document or record before the commissioner or in
obedience to the subpoena of the commissioner or any officer
designated by the commissioner, or in any proceeding instituted by
the commissioner, on the ground that the testimony or evidence
(documentary or otherwise), required of the person may tend to
incriminate the person or subject the person to a penalty or
forfeiture, but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter,
or thing concerning which the person is compelled, after validly
claiming the privilege against self-incrimination, to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and punishment
for perjury or contempt committed in testifying.
   (6) The cost of any review, examination, audit, or investigation
made by the commissioner under Section 1280.7 of the Insurance Code
shall be paid to the commissioner by the person subject to the
review, examination, audit, or investigation, and the commissioner
may maintain an action for the recovery of these costs in any court
of competent jurisdiction.  In determining the cost, the commissioner
may use the actual amount of the salary or other compensation paid
to the persons making the review, examination, audit, or
investigation plus the actual amount of expenses including overhead
reasonably incurred in the performance of the work.
   The recoverable cost of each review, examination, audit, or
investigation made by the commissioner under Section 1280.7 of the
Insurance Code shall not exceed twenty-five thousand dollars
($25,000), except that costs exceeding twenty-five thousand dollars
($25,000) shall be recoverable if the costs are necessary to prevent
a violation of any provision of Section 1280.7 of the Insurance Code.

   (r) Any shares or memberships issued by any corporation organized
and existing pursuant to the provisions of Part 2 (commencing with
Section 12200) of Division 3 of Title 1, provided the aggregate
investment of any shareholder or member in shares or memberships sold
pursuant to this subdivision does not exceed three hundred dollars
($300).  This exemption does not apply to the shares or memberships
of that corporation if any promoter thereof expects or intends to
make a profit directly or indirectly from any business or activity
associated with the corporation or the operation of the corporation
or from remuneration, other than reasonable salary, received from the
corporation.  This exemption does not apply to nonvoting shares or
memberships of that corporation issued to any person who does not
possess, and who will not acquire in connection with the issuance of
nonvoting shares or memberships, voting power (Section 12253) in the
corporation.  This exemption also does not apply to shares or
memberships issued by a nonprofit cooperative corporation organized
to facilitate the creation of an unincorporated interindemnity
arrangement that provides indemnification for medical malpractice to
its physician and surgeon members as set forth in subdivision (q).
   (s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following requirements:

   (1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired in
the ordinary course of business by a national bank or federal savings
association or federal savings bank having its principal office in
this state, by a bank incorporated under the laws of this state or by
a savings association as defined in subdivision (a) of Section 5102
of the Financial Code and which is subject to the supervision and
regulation of the Commissioner of Financial Institutions, and each of
which at the time of transfer to the pool is an authorized
investment for the originating or acquiring institution.
   (2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.
   (3) The loans are serviced by a financial institution specified in
paragraph (1).
   (4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.
   (5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under Regulation
A under that act, or in the opinion of counsel for the issuer, is
offered pursuant to an exemption under Section 4(2) of that act.
   (t) (1) Any security issued or guaranteed by and representing an
interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.
   (2) Any investment certificate in or issued by any industrial loan
company that is organized under the laws of a state of the United
States other than this state, that is insured by the Federal Deposit
Insurance Corporation, and that maintains a branch office in this
state.
  SEC. 20.  Section 25101 of the Corporations Code is amended to
read:
   25101.  The following securities are exempt from the provisions of
Section 25130:
   (a) Any security issued by a person that is the issuer of any
security listed on a national securities exchange, or on the National
Market System of the Nasdaq Stock Market (or any successor to that
entity), if the exchange or Nasdaq Stock Market (or its successor) is
certified by rule or order of the commissioner.
   (b) The exemption provided by subdivision (a) does not apply to
securities offered pursuant to a registration under the Securities
Act of 1933 or pursuant to the exemption afforded by Regulation A
under that act if the aggregate offering price of the securities
offered pursuant to that exemption exceeds fifty thousand dollars
($50,000).
  SEC. 21.  Section 25117 of the Corporations Code is amended to
read:
   25117.  (a) An evidence of indebtedness, and the purchasers or
holders thereof, shall be exempt from the usury provisions of Section
1 of Article XV of the California Constitution if (1) the evidence
of indebtedness is rated or provisionally rated by Standard & Poor's
Corporation as AAA, AA, A, BBB, or investment grade commercial paper,
or by Moody's Investors Service, Inc. as Aaa, Aa, A, Baa, or
investment grade commercial paper, including any such ratings with "+"
or "-" designation or other variations that occur within these
ratings, or has a rating or a provisional rating by another
nationally recognized rating agency or system, which rating and
agency or system have been certified by rule or order of the
commissioner, or (2) the issuer thereof either (A) has any security
listed or approved for listing upon notice of issuance on a national
securities exchange or on the National Market System of the Nasdaq
Stock Market (or any successor to that entity), if the exchange or
Nasdaq Stock Market (or its successor) has been certified by the
commissioner, pursuant to subdivision (o) of Section 25100, or (B)
meets each of the following requirements:
   (i) The issuer is a corporation which is subject to Section 13 of
the Securities Exchange Act of 1934.
   (ii) The issuer had total shareholders' equity of at least one
million dollars ($1,000,000) at the end of its most recent fiscal
year, and had consolidated net income, after all charges, including
taxes and extraordinary losses, and excluding extraordinary gains, of
at least five hundred thousand dollars ($500,000) for three of its
last four fiscal years, including its most recent fiscal year.  The
determination of total shareholders' equity and net income shall be
determined in conformity with generally accepted accounting
principles applicable to that fiscal year or years, on a consolidated
basis, or (3) the evidence of indebtedness is issued by any
corporation all of the outstanding shares of which are owned by an
issuer which meets the requirements of subparagraph (A) or (B) of
paragraph (2).
   (b) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
   (c) Any evidence of indebtedness issued in compliance with this
section shall be entitled to the benefits of the usury exemption
contained in this section regardless of whether subsequent to its
issuance the evidence of indebtedness is determined by a court of
competent jurisdiction to be a "security."
  SEC. 22.  Section 11521.2 of the Insurance Code is amended to read:

   11521.2.  (a) The reserve required by the table of commensurate
values for each annuity contract issued must be invested in
investments specified in Sections 1170 through 1182 except that a
certificate holder may invest in securities listed and traded on the
New York Stock Exchange, the American Stock Exchange or regional
stock exchanges or the National Market System of the Nasdaq Stock
Market or successors to such exchanges or market having the same
qualifications, to the extent of the lesser of net worth (assets over
liabilities and reserves) of the certificate holder or 10 percent of
such general investments.  This section does not permit investment
in options or commodity exchanges.
   (b) The certificate holder may invest in such other investments as
permitted by and subject to the written consent of the commissioner.

